European Banks Fail to Manage Climate, Environmental Risks

An assessment by of 186 European institutions by the European Central Bank (ECB) has found that banks are “still far” from managing climate and environmental risks in line with its 2020 guidance. Most institutions have devised institutional architecture to address climate-related risks, and 80% have acknowledged the materiality of physical and transition risks, but the ECB said current risk management approaches lack methodological sophistication, granular information, and/or active management. Further, 10% “have not shown any material progress this year” the report said. In light of the findings, the ECB has sent letters to institutions which outlines an average of 25 areas where they are falling short. Banks have been set specific remediation timelines to fully align with the 2020 guidance by the end of 2024 at the latest. The EBC has also published a compendium of good practices observed in some of the assessed banks, including data governance, due diligence approaches, and target-setting.

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